Dubai, UAE – With 75% of UAE residents expecting to receive an annual bonus this year, up from 68% in 2024, the question on everyone’s mind is: What’s the best way to use it? While the temptation to splurge on luxury vacations, high-end jewellery, or a new car is strong, financial experts urge residents to think strategically before spending their windfall.
According to Zurich Life International, one-third of respondents expect a bonus exceeding Dh25,000. However, before diving into dream purchases, financial advisers recommend a more practical approach. “While receiving a bonus is exciting, the temptation to splurge can be strong. That’s why it’s wise to have a plan in place before the bonus arrives,” says Raji Kaippallil, a qualified financial adviser and millennial money expert.
Step 1: Tackle Debt
The first step, according to experts, is to address any outstanding debts. Carol Glynn, a personal finance coach at Conscious Finance Coaching, advises, “If you have high-interest debt such as credit card debt, paying that off first is a smart move.” Clearing debt not only reduces financial stress but also frees up future income for savings and investments.
Step 2: Build an Emergency Fund
Once debt-free, the next priority is establishing or bolstering an emergency fund. Glynn emphasizes, “This is the one non-negotiable step I recommend for everyone. Knowing you have a financial safety net provides a sense of security.” Experts suggest setting aside three to six months’ worth of living expenses in an easy-access savings account. High-interest savings accounts, such as those offered by FAB and Mashreq NEO Bank, currently offer rates of 4.5% or more, making them an attractive option for short-term savings goals like a house deposit.
Step 3: Consider Investing
For those looking to grow their wealth, investing is a key strategy. Roberto D’Ambrosio, CEO of Axiory Global, recommends investment funds for their potential for higher returns, though they come with higher risk compared to cash accounts. For first-time investors, exchange-traded funds (ETFs) are a popular choice. “Look for broad-market ETFs such as an S&P 500 ETF or a global index fund, which offer exposure to a wide range of companies,” suggests Glynn.
Read: Dubai Court Sentences 35-Year-Old Arab Woman to 10 Years in Prison for Drug Offenses
Remco Coerman, an international tax adviser, echoes this sentiment: “Start with broad ETFs. Learn about taxes and avoid chasing quick gains. Investing without knowledge is costly.” For those interested in local markets, Graham Bentley, director of wealth at the Mosaic Group, highlights sectors like real estate, banking, and energy as potential opportunities. However, he cautions, “It’s crucial to balance your portfolio by including international equities and other asset classes to spread your risk.”
Step 4: Drip-Feed Investments
Rather than investing your entire bonus at once, financial advisers recommend a steady, long-term approach. “Drip-feeding your money into the stock market regularly smooths out fluctuations and encourages long-term thinking,” says Glynn. This strategy, known as dollar-cost averaging, helps mitigate the risks of market volatility.
Step 5: Spend Wisely
While saving and investing are crucial, experts agree that it’s also important to enjoy your bonus. Kaippallil suggests a balanced approach: “Allocate 80% of your bonus toward your future self through saving or investing, and set aside the remaining 20% for present indulgences like shopping, travel, or a relaxing massage.” Glynn adds, “Receiving a bonus means you’ve worked hard and achieved something, so it’s important to celebrate that, not just plan for your future.”
Younger Generations Leading the Way
Contrary to the stereotype of short-term thinking, younger generations in the UAE are showing strong financial discipline. According to Zurich’s survey, 31% of Gen Z (18-24) plan to save their entire bonus, while 63% of millennials (25-34) plan to save all or most of theirs. David Denton-Cardew, head of propositions at Zurich International Life Middle East, attributes this shift to recent global events like the pandemic and inflationary crises, which have heightened awareness of financial security.
Entrepreneurial Aspirations
Interestingly, more than half of UAE residents (54%) plan to launch their own business upon retirement. However, Bentley warns of the risks involved: “It’s crucial to have a solid business plan, ensure you have enough capital, and fully understand the market you plan to enter.”
Final Thoughts
Whether you choose to save, invest, or spend, the key is to have a plan. As Glynn puts it, “Start with a simple, long-term approach. Avoid chasing quick wins or high-risk investments that you don’t fully understand.” By balancing immediate gratification with future financial security, you can make the most of your annual bonus and set yourself up for long-term success.
